Ross Thompson | Tenants’ Fees: Fair or Foul

Many of you will be aware by now that the Chancellor of the Exchequer, Philip Hammond, has announced the government will soon make it illegal for letting agents to charge fees to tenants.

This is a serious and potentially controversial issue, which is clearly going to have an impact on the lettings industry, so I’ve been looking to my contacts in Scotland, who were affected by a very similar ban on tenancy fees in 2012, to see how this might affect tenants, landlords and agents in England and Wales – and you may be surprised to hear their thoughts.
Firstly though, I have to say that I feel this is really a positive step, and I completely understand and agree with why the government has taken action.

Far too many unscrupulous agents have been charging unfair fees for too long. Having been a tenant myself in the past I’ve actually had some personal experiences with this very issue; I spent months fighting one agent who was trying to rip me off.

I won the case in the end, but many of you may not have been that lucky. That was one of the motivating factors that eventually attracted me into this industry, and I’ve made very sure that at our agency we never treat tenants the same way. We understand tenants’ anger at disproportionate fees, and this is just one of the important ways in which we show that not all agents are equal!

What’s reasonable when it comes to fees?

Does that mean as an agency that we don’t charge tenancy fees? No it doesn’t – because like any business we have overheads to cover. But it does mean that we don’t charge what we consider to be unreasonable fees.

So what is unreasonable, I hear you say?
Well, we usually conduct multiple viewings to show prospective tenants around each property – more if it’s particularly desirable – and each of these can take up to an hour of staff time. To get to these, our staff must use the office car, which costs money to lease and run. An important process that incurs cost to us is the referencing we run when a tenant applies for a property.

In fact, the first thing we do is a quick affordability check; if the tenant cannot pass that or provide a guarantor, then it would be unethical to continue and waste their money – so we don’t. We make it clear to the tenant that it is highly unlikely that they will pass referencing, and advise them not to continue. Unfortunately some agents do continue, in the full knowledge that there is no real prospect of the applicant being able to afford the property!
After the affordability checks, we then go on to run some of the most comprehensive background referencing in the industry, using highly reputable companies. These are the same companies that you trust on a daily basis to provide you with credit scores, that banks use when you want a loan, or when you take out a mobile phone contract.

It’s a vital step, and one of the most important ways in which we provide security to our landlords. Naturally though, it involves a good deal of work, both by our staff and by the referencing agency, and it must be run for each tenant and any guarantor too. Occasionally this will throw up a problem, which means that the tenant is not successful in obtaining the property. In that instance my agency will automatically refund 50% of the fee paid, as the rest of the work will not be completed or needed. Not all agents are that fair however.

Who pays the bill?

So who should pay for the costs involved in letting a property? That is a question that tenants and landlords will differ on. Currently, what landlords pay for includes the inventory, as well as advertising the property. They pay us to check that their property complies with over 150 items of legislation prior to renting the property out to any prospective tenant, such as an Energy Performance Certificate, gas and electricity safety checks.

They must cover all insurances and any rent guarantees. They also pay us to ask specific questions of the tenants prior to moving in, and to ensure that we use our professional judgement when assessing tenants’ suitability. We also provide consultancy on a range of other issues and take time to explain these issues. When the ban on tenancy fees comes into force, the cost of referencing potential tenants will have to be shared between letting agents and landlords.

I think it is worth looking north on this issue, to see how Scotland coped when similar legislation was introduced in 2012. As a lettings agent up there pointed out to me: “The wheels didn’t fall off the bus.” Agents did not go bankrupt, landlords did not need to sell their properties and rents did not rise hugely.

So while you may see some of our competitors panicking as they try to figure out how they will replace the huge tenancy fees they have been charging, we won’t be worrying. While we will probably need to make minor adjustments to our landlord fees when the ban comes in (and the government has been very vague on exactly when that will be), we will continue to charge reasonable fees for excellent service.

So my advice to landlords who are unsure about how this will affect them is simple:
If you are with a good agent who charges reasonable fees – you have nothing to fear.
If you are not – it’s time to make sure that you are!
We support this legislation fully – it is a positive step that will weed out the unscrupulous agents, and leave a more balanced and fair system for tenants, agents and landlords alike.

So ignore the doomsayers who tell you the sky has fallen – the future is bright.